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Wednesday, October 8, 2014

iPhone A8, A9 and Second Sources

Apple chose to manufacture most of the A8 processor by TSMC. Out of the total volume of A8 chips, Samsung is producing around 30 percent, while TSMC is making 70 percent,. It is preferable in the electronic industry to have more than one vendor producing the semiconductor chips. If you have multiple sources for your chips you are not too dependent on only one supplier for your products. You also have more flexibility in price negotiations. It is interesting that earlier iPhone were dependent on only Samsung producing the microprocessor running the cell phone.

However, since fab lines are very expensive (see below and at Samsung To Invest Nearly $15B In New Chip Plant ) often vendor are stuck using only one foundry source. Different foundries processes are not identical and it will take long time to copy chip design from one vendor to another.

Samsung said it will invest in a new chip plant in South Korea, as the company seeks growth beyond smartphones. Bloomberg News

SEOUL— Samsung Electronics Co. plans to invest 15.6 trillion won ($14.7 billion) to build a new cutting-edge chip-manufacturing plant in South Korea as it seeks to maintain its lead in memory chips and grow beyond smartphones.

Samsung’s chip unit has become increasingly important to its profit growth as its smartphone business—which accounts for about 60% of its total operating profit—continues to suffer from intensifying competition from low-cost Chinese handset makers. Analysts expect demand for Samsung’s memory chips to stay strong for the rest of this year amid tight global supply.

Samsung said Monday that construction of the new chip plant will begin next year, with operations to start in 2017. The new plant will be located in Pyeongtaek, a city south of Seoul.

Samsung hasn’t yet decided what types of chips it will produce at the plant. Samsung’s competition with Taiwan Semiconductor Manufacturing Co.s likely to intensify in coming years as they compete to make logic chips for Apple Inc. iPhones. Logic chips are semiconductors that process decisions, as opposed to storing memory, to operate gadgets.

Microprocessors, considered to be the brain of a smartphone, are a type of logic chip.

The ability to spend heavily, thanks to its hefty cash pile of $60 billion, has allowed the company to maintain its lead in memory-chip production.By moving quickly to finer chip-process technology, Samsung is able to cut chip-manufacturing costs.

It also makes NAND flash-memory chips, which are used in mobile devices including digital cameras.

The investment comes as Samsung, which is to report earnings estimates for the third-quarter Tuesday, is expected to say that its operating profit likely halved from a year earlier due to the poor performance of its mobile business.

Some analysts expect the company’s chip-division profit to exceed mobile phones for the first time in three years.

Samsung posted an operating profit of 10.2 trillion won in the third quarter of 2013. About a third of its profit come from chips, televisions and home appliances.

Last week Samsung, moving to capitalize on cheap labor costs, said it would invest $560 million for a new TV plant in Vietnam, saying that the complex will be used for addressing mid- to long-term demand for consumer electronics globally, including emerging markets.

In South Korea, Samsung has memory-chip production lines in Hwaseong and facilities in Giheung that focus on logic chips. The company also has chip plants in China and the U.S.